Originally published August 8, 2005

On August 4, 2005, the California Supreme Court held that pre-dispute contractual waivers of the right to a jury trial were unenforceable under California law (Grafton Partners L.P. v. Superior Court, No. S123344 ("Grafton")). Though the Court recognized that this result is out of step with most other jurisdictions, it based its conclusion on two main points:

  1. Article I, Section 16 of the California Constitution providing that the right to a jury trial in civil cases may be waived in the manner to be prescribed by law, and;

  2. The fact that there is no statute in California permitting parties to waive the right to a jury trial by a pre-dispute contractual waiver.

The Court refused to apply its holding on only a prospective basis, and as such, the decision is applicable to all existing agreements. Does this mean that companies and individuals contracting in California must resolve disputes with a jury trial? Not necessarily.

The Court expressly stated that its holding did not affect arbitration agreements or agreements for judicial reference proceedings, as those agreements are specifically permitted by statute.

How does one then resolve this problem? A company or individual that desires to avoid a jury trial in California state court and avoid the potential pitfalls of arbitration may consider using the following language, or a suitable variant, in agreements to be drafted (or amended) in the future:

All disputes arising out of or in connection with this Agreement shall be resolved by a judicial reference proceeding pursuant to California Code of Civil Procedure § 638. The judicial referee appointed to decide the judicial reference proceeding shall be empowered to hear and resolve any or all issues in the proceeding, whether of fact or law.

This language, unlike a straightforward waiver of a right to trial by jury, should be enforceable under Grafton, since Grafton itself recognizes that a jury trial can be avoided by a pre-dispute agreement for a judicial reference proceeding pursuant to Code of Civil Procedure § 638.

Should a company anticipate that litigation might be brought in a jurisdiction other than California or in federal court where pre-dispute contractual waivers of jury trials are enforceable, this language can be limited so as to apply only if litigation is filed in California state court.

If a company anticipates that there may be a need for provisional remedies pending the appointment of a judicial referee, this language should be modified to allow the Court to grant provisional remedies pending the appointment of the judicial referee.

The law governing judicial reference proceedings is set forth in California Code of Civil Procedure § 638 et seq. A judicial reference proceeding is, in substance, no different than a bench trial before the Court. The referee is typically a retired judge chosen by the parties. If the parties cannot reach agreement on the referee, then the referee will be appointed by the Court. The referee has the powers of a Superior Court judge; the Codes of Civil Procedure and Evidence apply, so full discovery is available to the parties. The judgment entered by the retired judge is fully appealable in the ordinary course, as if it had been entered by a Superior Court judge. One important difference is that the referee’s fees are paid by the parties, either pursuant to the agreement of the parties or by order of the Court.

While at first glance, the Grafton decision may appear to eliminate all pre-dispute contractual waivers of the right to a jury trial in California, pre-dispute agreements can be drafted to preserve the benefits of a judicial proceeding without incurring the risks of either a jury trial or an arbitration.

Mr. Levin is a partner and Mr. Murphy is counsel in the litigation group in the Los Angeles office of Mayer, Brown, Rowe & Maw, LLP. The opinions in this article are not necessarily those of Mayer, Brown, Rowe & Maw, its attorneys or its clients.

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